Despite Modest Earnings in 2014, Private Foundations under $50M Gave Considerably More than the Required 5% Minimum Distribution

FAIRFIELD, CT—May 19, 2015—Foundation Source, the nation’s largest provider of comprehensive services for private foundations, today released its fourth Annual Report on Private Foundations analyzing the investment and grantmaking behavior of private foundations with assets of less than $50 million. The complete report can be downloaded here.

Private foundations are required to distribute 5% of their net assets from the previous year. However, according to the report, in 2014 these foundations made charitable distributions well in excess of this amount, averaging 7.6%, while foundations with less than $1 million averaged distributions of 13.2% (Hyperlink: CHART 1). These amounts challenge the notion that private foundations hew closely to their 5% minimum distribution requirement (MDR) each year.

According to Robert Chartener, CEO of Foundation Source: “A common refrain among the general public, and even among philanthropy professionals, is that private foundations only meet the 5% minimum distribution requirement (MDR) each year. However, we have collected data on the activities of private foundations with assets below $50 million for several years, and this community, which represents 98% of all U.S. private foundations, has consistently and significantly exceeded their MDR.”

The Annual Report from Foundation Source is noteworthy in that foundation research typically focuses on the “mega foundations,” those that make up just the largest 1-2% of all foundations. Extrapolating data from these outliers to the entire population can lead to misunderstandings about the foundation sector as a whole.

The report is based on the transactions of 769 Foundation Source clients. The data is based on actual transactions recorded as Foundation Source processed grants, paid expenses, and reported investment information on behalf of its foundation clients. Because this report is based on empirical data, not opinion surveys, estimates, or tax returns (which aren’t publicly available for a year or more), the information is both accurate and timely.

Top findings from the report include:

1. Foundations gave well above the 5% MDR.
The distribution rates for 2014 were generally consistent with the previous year. Overall, the foundations distributed 7.6% of their assets, 50% above the required 5% MDR, and nearly identical to their 2013 distribution rate of 7.5%. Moreover, foundations with less than $1 million in assets distributed 13.2% in 2014, the largest percentage relative to their asset size. That these smaller foundations matched, and even slightly exceeded, their 2013 distribution rates was noteworthy in light of the moderate growth of their assets in 2014.

2. Foundations saw modest asset growth in 2014.
These foundations experienced an overall average asset growth of 3.7%. This was in marked contrast to 2013, when foundation assets grew 20.7% on average. Although foundations with assets of $10-$50 million saw growth of 4.6% in their asset values in 2014, the smallest foundations, those under $1 million, experienced a 2% decline. There were various factors besides market returns that contributed to the growth or decline of their asset balances.

3. Overall giving in 2014 was up 18.3% from 2013.
Collectively, these foundations gave more in 2014 than in the previous year. However, foundations with assets between $10 and $50M increased their grantmaking the most, rising 28.0% over 2013.

According to Page Snow, Chief Philanthropic Officer of Foundation Source: “We are pleased to see that foundation distribution rates have remained consistently strong, year after year. As policies are currently being proposed that would mandate distribution levels for other charitable vehicles, such as donor-advised funds, there’s been speculation about the possible impact of such requirements. We believe that private foundations may prove useful bellwethers in that the minimum distribution rate seems to be perceived by foundation donors as a floor, rather than a ceiling. The results of our report are therefore potentially instructive for policy makers considering the imposition of distribution requirements for other charitable vehicles.”

About the Foundation Source Annual Report
Based on the activities of our foundation clients, the Foundation Source Annual Report on Private Foundations examines the grantmaking and investment activities of private foundations with assets below $50 million. This fourth year of the report examines data from 2014 and compares it with data from 2013. These reports continue our effort to elucidate the behavior of this sector of the foundation population, a community that represents 98% of all private foundations in the U.S. The roughly 89,000 foundations that each holds less than $50 million in assets may not garner the same media or popular attention as their billion-dollar brethren, but they are extremely dynamic, supporting charitable causes with an enthusiasm and effect that belie their individual size.

About Foundation Source (www.foundationsource.com)
Foundation Source is the nation’s largest provider of comprehensive support services for private foundations. The company can set up a new private foundation quickly and easily, and for established foundations, our administrative services, proprietary online foundation management tools, and philanthropic advisory services provide a complete outsourced solution. Our clients provide the philanthropic vision; we supply everything else.

Now celebrating our 15th year, Foundation Source provides its services to more than 1,200 family, corporate, and professionally staffed foundations, of all sizes, nationwide. We work in partnership with wealth management firms, law firms, and accounting firms, as well as directly with individuals and families. Foundation Source is headquartered in Fairfield, Connecticut, with offices in Boston, Los Angeles, New York City, Philadelphia, San Francisco, Seattle, South Florida, Washington, D.C., and Winston-Salem.

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Foundation Source is the nation’s largest provider of comprehensive support services for private foundations, serving more than 1,300 family, corporate, and professionally staffed foundations, of all sizes, nationwide.